By Mike Gibbons, RICP®
No one is immune to vacationitis. You know, when you’re on vacation and suddenly imagining yourself at your own little retreat on a regular basis. It happens to even the most sensible and level-headed of us. But before you start scouring Zillow and reaching out to real estate agents, slow down and consider if a vacation home is truly a good investment for you and your family.
To help you think through this decision from a variety of angles, we’ve created a list of questions to ask yourself, along with pros and cons to consider, before buying a second home.
Questions To Ask Yourself Before Buying A Vacation Home
As with most things in life, there is no one-size-fits-all answer for whether you should buy a vacation home. That said, here are three questions that should guide your decision-making process:
Question 1: Does Owning A Vacation Home Make Sense With Your Lifestyle?
If you typically work 60+ hours a week with little time off, a vacation home may not be for you. If you typically like to visit a new city or country each time you travel, a vacation home may not be for you. If your ideal vacation consists of all-inclusive resorts and unlimited pampering, a vacation home may not be for you.
Think about how you like to travel—and how often you can do it—then decide if a vacation home makes sense.
Question 2: Can You Afford A Vacation Home And The Ongoing Expenses That Come With It?
Even if you can pay cash for a vacation home, there are plenty of other expenses to watch out for: property taxes, HOA fees, insurance, utilities, maintenance, etc. Some of these costs can be hard to estimate beforehand.
Question 3: What Will You Do With It When You’re Not Using It?
Some people plan to rent their vacation homes out when it’s not in use. Others prefer to keep it all to themselves. There’s no wrong answer, but know that what you plan on doing with your vacation home can impact the deductions and credits you qualify for come tax time.
Pros Of Owning A Vacation Home
Now that you’ve clarified your situation a bit, here are five reasons why you may want to invest in a vacation home:
You could potentially generate rental income. The biggest advantage of owning a vacation home is that you can rent it out with a local company or on Airbnb or VRBO for extra cash.
It could appreciate in value. If you buy the right home in the right location, it’ll appreciate in value, increasing your personal net worth in return.
There could be tax benefits. If you keep your vacation home for yourself, you may be able to deduct mortgage interest and property taxes when you file your return. If you rent it out, you may also be able to deduct maintenance, repair costs, marketing, and management fees. (1)
You’ll have a fun place to gather with friends and family. Most people buy a vacation home because they want to make sweet memories with family and friends.
It makes “getting away” convenient. A vacation home is just that: your home. You can leave clothes and essentials there, reducing the time and energy you need to spend packing up each time you want an escape.
Cons Of Owning A Vacation Home
The benefits of owning a vacation home are enticing, but there are also reasons why you may not want to do it:
It can get expensive quickly. It’s difficult to accurately project how much you’ll spend on your new home. Utilities, insurance, taxes, renovations, repair costs—these can all add more to your bottom line than anticipated.
It could be a risky investment. There are risks associated with any investment, but vacation homes may be more susceptible to economic downturns and natural disasters.
You may get tired of visiting the same place. Once you buy a vacation home, you may feel pressured to visit it any chance you get to help justify the cost. You may feel locked in and pass on an opportunity to visit someplace new.
Is Owning A Vacation Home A Good Investment?
Whether or not owning a vacation home is a good investment depends on your unique financial situation. If you have a sizable down payment and can easily afford the additional expense, it may make sense for you. But if you’d need to tap into retirement savings or rent it out for part of the year to cover the cost, it might not. Like most financial decisions, only you can determine if owning a vacation home is a good investment and will align with your other financial goals.
Consult A Professional
Buying a vacation home is a significant commitment. For some individuals, the payoff may be worth it; for others, the added cost and stress of maintaining a second property could be too much to take on. Rather than letting your vacationitis call the shots, it’s best to consult an experienced financial professional who can help you objectively evaluate your circumstances.
We at Gibbons Financial Group are here to help you come to an informed decision about whether a vacation home makes sense for you. While we’re at it, we can also put a plan in place that empowers you to work toward all your financial goals—whether that’s buying a cozy cabin in the woods or retiring early. Call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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(1) https://www.investopedia.com/articles/personal-finance/013014/tax-breaks-secondhome-owners.asp